Step 2 : Getting Financially Fit
In the first chapter of our first-time Homebuyers and Property Investors Guide , we helped you think through the WHY of buying a property .
• Are you buying a house or apartment to live in yourself ?
• Do you aim to buy a property to let it out ?
• Are your plans to buy and then flip the property ‒ i . e . sell it for a profit ?
Your choice to buy to live , rent or flip will determine how you navigate the road ahead ‒ either as a prospective first-time home buyer or first-time property investor . The information and tools we provide going forward will , at times , be different for each journey , so be sure to take note of the sections relevant to you .
Keep an eye out for these symbols in future articles to know when a piece of content is specific to your journey :
First-Time Home-Buyer First-Time Property Investor
How financially fit are you ? Your next step in property ownership will be to get yourself financially fit enough to take the plunge into the property investment arena . For this you will need to :
1 . Obtain and understand your own credit report and affordability 2 . Improve your credit score 3 . Get out of debt 4 . Manage your budget 5 . Save for a deposit
Financing your first property purchase Most first-time property buyers don ’ t have the cash in hand to pay to pay for a property upfront . The most common way to finance a property is to take out a home loan with a bank or mortgage broker . But these lenders need to know they can trust you to pay off your bond . The factors that will have a major impact on your home loan approval will be your current credit rating and profile , as well as your exposure to debt and affordability .
What is a credit rating ? Before applying for a home loan , you will want to make sure that you stand the best chance of having your application approved . Lenders such as banks and other financial institutions will look at your credit profile and history ( usually as far back as three years ) to see how well you have handled credit in the past . They will then assign you a credit rating .
Your credit history is made up of your bank statements , information about your past and existing accounts , plus your current financial circumstances . Lenders will look to see how regular your payments on your cell phone account are , for example . They will want to know if you have a regular job , how many dependants you have and how well you are servicing other loans or debt .
What is affordability ? When it comes to applying for credit , affordability is the amount of money you earn versus the amount that you owe : it is your repayment-to-income ratio . Credit providers look at your discretionary income ( how much money you have after essentials have been paid for ) plus your existing maintenance obligations and debts . They us this information to see if you can afford their product . This is to prevent you from becoming overindebted , something which is required of them by the National Credit Act ( NCA ).
1Know and understand your credit score and affordability
The point is to have a strong credit rating and good results from an affordability check . According to Credit Bureau , a good credit report can give you access to better interest rates , better credit limits and better credit terms , which can save you thousands . Knowing your credit score will also give you the chance to improve it over time .
To get your credit score and history , visit Credit Bureau online : www . creditbureau . co . za . Credit Bureau provides a 3 in 1 comparative credit report using credit reports from TransUnion ( ITC ), Experian and XDS . Insights from this report will help you build your credit status .
The NCA stipulates that you can get your credit report for free once a year . Use this report to check for errors , outdated information and ensure you haven ’ t been a victim of identity fraud .
www . reimag . co . za MARCH 2017 SA Real Estate Investor 21